Bank of England Maintains Interest Rates

Investing.com – The Bank of England kept interest rates unchanged at 4.75% as expected. Deutsche Bank anticipates four rate cuts in 2025, indicating a backloaded cycle.

The decision was largely anticipated, but analysts expected a unanimous vote; however, three dissidents called for an immediate rate cut. Deutsche Bank reported that Dhingra, Ramsden, and Taylor voted for an immediate withdrawal of some policy restraint due to sluggish demand and a weakening labor market.

For the majority of the Monetary Policy Committee (MPC), a gradual approach to removing policy restraint remains preferred, especially given persistent price and wage data observed recently. This vote split signals a dovish pivot.

The economic outlook shows competing risks for the MPC. While growth dynamics have significantly slowed, it remains unclear whether this is due to weakened demand or supply. Progress on domestic disinflation has been modest, with price momentum expected to rise soon. Inflation expectations are creeping higher, increasing the MPC's concerns about the timing and pace of rate cuts into 2025.

Uncertainty around the economic outlook is expected to grow, with domestic and external risks influenced by the Autumn Budget and geopolitical trade uncertainties.

Deutsche Bank predicts just one rate cut in the first half of 2025 (February) and three quarter-point cuts in the second half as unemployment surpasses the MPC's NAIRU estimate of 4.5%, wage settlements align with target levels, and services inflation shows a downward trend. The Bank Rate is projected to settle near 3% in Q1 2026.